It turns out that the high-water marks they use for
outperformance calculation expire after just one year.

Nice, now they can wipe the crisis from memory.

The news is pretty annoying for any investor left underwater.
Essentially, you could be charged 20% performance fees just to
make back the money they lost you. Given you likely paid 20% the
first time around, this amounts to paying 20% twice, in addition
to 1-2% management fees as well.

Bloomberg: In response to an analyst’s question on a
first-quarter earnings call, Dan Och, Och-Ziff’s founder, said
investors hadn’t complained about its terms. “We have not had
discussions or comments with investors in terms of the high-water
mark.” he said. “I think they’re focused on what we’re focused
on: generating the performance.”

Technically, investors can simply leave the funds if they
disagree. Yet the reality is that these mega funds receive most
of their allocations from large institutions such as endowments,
pension funds, and fund of funds. The managers of these large
institutions are likely closer personally with their counterparts
in the hedge funds than with the thousands of smaller investors
they represent. Some might walk due to the fee arrangement, but
most probably won't.

This is because their actual investors are unlikely to realize
that these funds' faux-high-water-marks even exist.